Survey Finds Spending Is Weak Despite Change In Consumer Behavior

Wall St. Journal - October 11, 2007 –

As representatives of many of the country's best known marketers gather for their annual conference in Arizona today, one topic is sure to dominate chatter both in seminars and cocktail parties: the challenges some face in adapting to the digital world.

Results from a new study will underscore those concerns. According to the study, which will be released during the conference, "digital marketing still lags the shift in consumer behavior" prompted by the Internet. The findings indicate that while "eight in 10 Americans are now online" and spend as much time on the Web as on TV, most marketers allocate only 5%-10% of their ad budgets to digital media.

The report was prepared by consulting firm Booz Allen Hamilton in conjunction with the Association of National Advertisers, whose annual conference runs through Sunday in Phoenix. In keeping with the focus on digital media, some big marketers will give presentations on their digital experiences. Anheuser-Busch's marketing guru Bob Lachky, for example, is scheduled to talk about how the brewer has tackled new media. Anheuser has been particularly aggressive, starting its own entertainment online network, for instance.

The growth of the Web and other technological advances, such as digital video recorders, has given consumers more control of what they see -- and when. As a result, marketers are being forced to find new ways to peddle their products.

In a sign of how thirsty marketers and ad executives are to hear about new approaches, attendance at the conference has jumped 25% this year to 1,200, according to the ANA. That makes it the first time the gathering has sold out since it started 97 years ago, says Bob Liodice, chief executive officer of the ANA. Executives expected to attend include Mary Dillon, chief marketing officer for McDonald's and Jim Stengel, global chief marketing officer of Procter & Gamble, the country's largest advertiser.

The Booz Allen report was partly based on an online survey of 184 marketers -- members of the ANA -- conducted in August by a New York research firm on behalf of the association. Its conclusions reinforced perceptions that many marketers are struggling to figure out digital media.

Less than 24% of those polled considered their companies "digitally savvy," citing several issues, including "lack of experience in new media" and "dearth of digital talent," the report said.

Some industries are further behind than others: Nearly half of the consumer-goods companies that participated in the study spend less than 5% of their marketing budgets on digital, whereas technology, travel and financial services allocated more of their ad dollars to digital media.

The difference reflects consumer behavior. In areas such as technology and travel, consumers now typically use the Web to make purchases and do research. In packaged goods, "consumer shopping behaviors haven't changed" that much, says Andrea Rasmussen, a principal at Booz Allen.

Another roadblock slowing the flow of ad dollars to the digital side is uncertainty about how to measure the return on investment. There is real concern among marketers about the "core metrics...what in fact is being viewed" online, says Mr. Liodice. Marketers complain about the big disparities between research companies in how they track audience measurement on the Web. Top industry trade groups such as the Interactive Advertising Bureau have asked measurement companies to remedy the problem.

Despite the issues, Mr. Liodice says that companies such as Procter & Gamble, American Express and others have "demonstrated a great proclivity for alternative media." Moreover, he points out that the report shows that a quarter of the marketing organizations polled have established media-experiment funds to finance tests of unproven media.

At least one of the speakers at this year's event is likely to advocate more experimentation. Microsoft Chief Executive Steve Ballmer is scheduled to speak tomorrow morning. He is expected to tell marketers how they can use the Web to connect with consumers. Mr. Ballmer has lately been vocal about his desire to give Microsoft a bigger presence in advertising.

"As I look out 4, 5, 6, 10 years from now, advertising will become 15, 20, 25% of Microsoft's business," he said recently during a speech in Paris.